Demand and supply data still diverge, Venezuela’s increasingly critical to balances, and some macro alarm bells are starting to ring

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Opec, the International Energy Agency and the Energy Information Administration simply don't agree on the state of the oil market's balance. Tight oil's recent surge has thrown a spanner in all their works. But some nuggets in the data are worth drawing out—they might be decisive over the coming months.

1. Demand is strong, but the agencies don't agree how strong…The IEA upped its forecast for 2018 a bit, to 1.5m barrels a day, a reflection of strong macro-economic data. Opec increased its forecast slightly to 1.6m b/d. Among these three, the EIA is most bullish, expecting 1.8m b/d of growth. What's startling in the detail, though, is when they think consumption will happen. Both Opec and the IEA foresee a big jump between Q1 and Q4: of 2.72m b/d of growth according to the former, and 2.42m according to the latter. Those are huge numbers for that Q1-Q4 period. (The EIA's Q1-Q4 growth outlook is smaller, because it thinks demand is already much higher.)

Why this matters The IEA's numbers look anomalous. It expects global oil demand this year to grow slower than it did last year—but its equivalent Q1-Q4 growth figure for 2017 was 1.89m b/d, 520,000 b/d less than it expects this year. Expect some adjustments later.

2. ... But some faint alarm bells are sounding about the macro picture…Make no mistake, all three are bullish about the global economy, hence the robust demand outlooks. The IEA cites a 0.2 percentage-point increase in economic growth this year. But some concerns are creeping up. Trump's trade wars and the Fed's interest-rate-easing programme are in both the IEA's and Opec's minds. (The EIA makes no comment on the macroeconomic backdrop.) Opec talks of "political developments" that could dampen growth but hones in explicitly on the Fed, saying its "normalisation" policy "could negatively impact emerging economies, leading to capital outflows, while foreign investments have been an important source of funding for economic activity, supporting oil demand".

Why this matters Trump's trade rhetoric and the Fed moves are starting to look ominous.The IMF, whose data are the source of the demand bullishness, has also now pointed to the dangers of a trade war. Bulls beware.

3. …and on the demand side a lot rests on IndiaChina's oil demand still grows strongly. The country will need another 422,000 b/d in 2018, according to the IEA. India's consumption rose sluggishly last year (120,000 b/d). This year, the IEA expects 305,000 b/d. Opec says the rise was just 80,000 b/d last year and will be 190,000 b/d. Either way, producers are now pinning a lot on much faster Indian consumption this year—and up to 12% of the demand forecasts depend on it.

Why this matters Aside from the US and China, India is the biggest source of demand growth in 2018, according to Opec. And some of the data elsewhere look a bit ropey. For example, Opec says US gasoline demand fell in December by 1% for the second month in a row. Light vehicle sales continue to drop steadily. Demand in Europe's big four consumers was very weak in January—down by 240,000 b/d compared with last year. India's becoming a crucial demand pillar.

4. The non-Opec production forecasts are all over the place…Opec has again sharply revised up its non-Opec supply forecast—by a whopping 280,000 b/d to 1.66m b/d. (That's about double what it forecast in November.) But the secretariat is still the outlier. The IEA expects 1.8m b/d of growth. The EIA, closest to the booming tight oil patch, predicts 2.5m b/d more from non-Opec in 2018. The US alone will increase liquids supply by 2m b/d, it says.

Why this mattersThis is the crux of Opec's effort to rebalance the market. Its own forecast now sees non-Opec supply accounting for all global demand growth this year—which is why it has also lowered the call on its crude this year. The IEA's numbers leave the market treading water, edging towards balance. The EIA's forecast demolishes the rebalancing—stocks will start building this year by 420,000 b/d, it reckons. If so, the market is heading back to a hefty surplus.

5. …Meaning a lot now depends on VenezuelaVenezuela—subject of Petroleum Economist's cover story in the April issue—is the critical moving part in Opec's rebalancing project. Its production slump (February output was 400,000 b/d less than 2017's average) is masking some slippage in the Opec-non-Opec cuts. The IEA reckons its production could fall by another 200,000 b/d or so to 1.38m b/d. Put another way, Venezuela complying with its Opec quota to the tune of 544%. If it were pumping at its agreed limit, total Opec production would be 32.5m b/d right now, about 400,000 b/d above the call on its crude in Q1.

Why this mattersFurther decline from Venezuela—or stabilisation and recovery—could be the difference between a tight or loose oil market this year. So all eyes are on the Orinoco. That is, until Opec and partners decide in June whether to continue cutting. At that point, they'll look hard other members of the pact, whose lukewarm cuts have been masked by Venezuela's involuntary diligence.

According to Opec's numbers, for example, its key partner Russia produced 11.16m b/d in February, a second monthly rise and about 180,000 b/d more than it is supposed to be cutting. If this suggest Russia is easing out of the deal, Venezuela's losses will become even more important. For now, they're more than covering for Russia's fading compliance.